Securities Brokerage

EFG Hermes’s brokerage division continued to expand its presence in 2018, capturing a larger market share across the region despite adverse market conditions

Overview

EFG Hermes Securities Brokerage is the leading brokerage house in the region, offering clients a unique range of products and services and an unparalleled coverage of over 75 MENA and frontier emerging markets. Currently, the division has on-the-ground presence in Egypt, Kuwait, the UAE, Saudi Arabia, Oman, Jordan, Pakistan, Kenya, Nigeria, Bangladesh, and offices in the United Kingdom and the United States. In 2018, despite the challenging market conditions impacting the MENA region as a whole, EFG Hermes Securities Brokerage successfully strengthened its market share in countries where it operates while simultaneously expanding its geographical footprint, with the division opening offices in both Nigeria and Bangladesh. At the end of 2018, the division was ranked first for share of market execution on the Egyptian Stock Exchange (EGX), on both the Abu Dhabi and Dubai Exchanges (ADX and DFM), NASDAQ Dubai, and Boursa Kuwait.

EFG Hermes Securities Brokerage serves a diverse client base ranging from individual retail investors to some of the most prominent institutional investors and high-net-worth-individuals in the region. We bring our clients an exceptional portfolio of products and services all backed by our award-winning research division, which provides clients with the best real-time market intelligence available, and our online trading platform, which allows for seamless market access from desktops, laptops and mobile phones.

Operational Highlights of 2018

EFG Hermes Securities Brokerage witnessed strong operational results in 2018 in the midst of subdued trading volumes across the entire MENA region, with several markets suffering from negative market sentiment weighing down on retail investment.

The Egyptian economy witnessed its best year since 2011, expanding by more than 5% during 2018. Trading volumes on the Egyptian Exchange (EGX) started 2018 on a very positive note before losing momentum to global emerging markets sell-offs as the year progressed. Nonetheless, EFG maintained its number one ranking on the EGX, with the firm’s market share holding steady increase to 43% in 2018 up from 38% in the previous year. In the latter half of 2018, EFG Hermes successfully advised and completed CIRA’s IPO. The institutional offering was 10.36x oversubscribed and the retail offering was 18.7x oversubscribed and the stock closed up 17.7% in its first day of trading.

In Kuwait, negative sentiment from local retail investors drove overall trading volumes on the Kuwaiti Stock Exchange down by more than 20%. Nonetheless, the division managed to substantially grow its share of the market from 24% in 2017 to 38% in 2018, climbing to a number one ranking from third place last year. In September 2018, Kuwait was upgraded to Secondary Emerging market status within FTSE Global Equity Index Series (GEIS). This landmark reclassification resulted in two large tranches of foreign inflows into the Kuwaiti Stock Exchange, one in September and a second one in December 2018. EFG Hermes Securities Brokerage’s established reputation as the broker of choice for foreign institutional investors in the region allowed the division to capture the bulk active and passive fund flows, channeling over USD 950 million between the two tranches. Additionally, EFG Hermes executed Humansoft accelerated book building worth KWD 68.5 million, with EFG Hermes IFA executing both sides of the deal.

EFG Hermes Securities Brokerage increased its market share to 22% from 15% on the DFM in FY2018 and grew its market share to 40% in FY2018 from 28% last year on ADX, ranking first on both markets. It also maintained its market leading position on the NASDAQ Dubai, increasing our market share from 55% in 2017 to 63% in 2018. The division’s strong performance comes despite a generally stagnant market in 2018, with low sentiment witnessing local high-net-worth retail clients take a step back during 2018. Nonetheless, foreign institutional investors continued to operate in full force, with EFG Hermes leveraging its position as the leading conduit for institutional funds flows and capturing a larger share of market activity. In the first half of the year, the division captured most of the passive institutional flows during both the MSCI and FTSE rebalancing events.

In Saudi Arabia, EFG Hermes Securities Brokerage’s market share almost doubled compared to 2017 in the midst of an overall 15% increase in trading volumes on Tadawul. The division ranked fourth in the independent brokers rankings while it maintained its second-place ranking among foreign brokers in the Kingdom. The impressive increase in market share was a direct result of the division’s ability to capitalize on the regulatory reforms which have opened up the market to qualified foreign financial investors, in turn allowing the Group to capture a large share of the incoming flows.

In Qatar, EFG Hermes Securities Brokerage also had a standout performance in 2018, with the division doubling its market share, reaching 29% in 2018. In Oman, the division held on to its fourth ranking in the midst of lower trading volumes on Muscat Securities Market.

Brokerage Rankings (percent of total market executions)

Frontier Emerging Markets

EFG Hermes’ Frontier division continued to expand its direct presence in, and coverage of, key frontier emerging markets during 2018, despite the challenging macroeconomic and political environments across several geographies where the Group operates. The uncertain geopolitical climate weighed down on equity capital market transactions and brokerage volumes, which slowed across frontier and emerging markets. Nevertheless, EFG Hermes Frontier strengthened its position across its frontier footprint despite fierce competition from existing players, with the Group adding new markets to its roster and rolling out new product offerings. EFG Hermes’ Frontier division continues to make a growing contribution to the Group’s bottom-line and presents significant upside potential.

The Group’s first Sub-Saharan Africa office in Nairobi was launched in August 2017 and delivered a very solid performance in 2018. Despite challenging local market conditions and competition from both local and regional brokers, EFG Hermes closed the year as a top-six broker in Kenya by market share and expanded on-the-ground with the addition as it seeks to capitalize on a growing interest from international institutional investors. On the opposite coast of the continent, EFG Hermes announced in July 2018 its acquisition of Nigerian brokerage house Primera Africa, which will allow the Group to expand its research coverage and offer a full suite of brokerage services in the country.

Meanwhile in early 2018, the Group launched its newest country office in Dhaka, Bangladesh driven by a growing interest from EFG Hermes’ global institutional clients eager to explore high-potential opportunities in the country. At the end of its first year in Bangladesh, EFG Hermes had captured the largest market share of international institutional investors trading in the country, with further growth expected in this fast-growing market during the coming year.

In Pakistan, the firm engaged in a careful and well-thought-out business restructuring, beginning with a change in the division’s management, and is confident that the division’s performance in the country will see strong improvements in 2019.

In July 2018, the firm served as a joint bookrunner for the initial public offering of microlender ASA International’s on the London Stock Exchange. The transaction marked a milestone in the Group’s frontier strategy and showcased its execution capabilities in frontier markets. EFG Hermes Research coverage has also expanded to cover 75 frontier emerging markets around the world as of year-end 2018, up from 60 markets in the previous year.

EFG Hermes One

EFG Hermes One is the division’s innovative online platform developed in partnership with Saxo Bank. The platform allows clients to trade on multiple regional exchanges and across various asset classes at a click of a button and from anywhere around the world. The platform seamlessly integrates with the SaxoTraderGo platform to expand access and capabilities, and also provides access to the EFG Hermes’ award-winning research products.

In 2018, the platform was revamped and rolled out across the entire MENA region, gaining positive feedback from users and clients. The platform continued to deliver growth in both assets under management as well fees and commissions during 2018, with momentum expected to carry forward into 2019 as the Group leverages its white label agreements for the platform with regional financial institutions.

Structured Products

EFG Hermes Securities Brokerage structured product desk continued to perform well in 2018 despite reporting decreased revenues compared to the standout performance recorded in 2017, which was largely driven by carry trade attractiveness and favorable T-bill yields. Although carry trade activity in Egypt slowed during the year, the division’s structured product desk remained very active across the wider MENA region as the firm further diversified its product offering and scope.

In 2018, EFG Hermes Securities Brokerage re-launched its fixed income desk as part of a wider strategy aimed at growing EFG Hermes’ debt capital markets business, as the division looks to diversify its product offering and target additional market segments.

Unique Corporate Access

2018 saw EFG Hermes expand its world-renowned investor conferences increasing both the number of presenting companies and attending investors, with a significant increase in attendance from investors in leading Frontier Emerging Markets around the world. The increased turnout that EFG Hermes recorded across its conferences is a testament to the quality of the events organized by the Group especially in light of the general decrease in attendance reported across other competitors’ conferences resulting from the new MiFID II regulations, and the additional attendance fees now being charged.

EFG Hermes’ strong corporate access, research coverage and unrivaled trading platform allowed it to record impressive MiFID II signups in excess of Group targets, in-turn driving attendance at its events given the Group’s increasingly consolidated offering. Overall, contrary to initial sentiment the implementation of the new MiFID II regulations have had a positive effect on the Group’s operations in terms of market shares and trading volumes.

In early 2018, EFG Hermes hosted its 14th annual One on One Conference in Dubai. This year’s gathering saw executives from 173 companies spanning 26 countries meeting with 518 investors from 255 institutions managing more than USD 8 trillion AUMs. The conference took place under the headline “Shifting Benchmarks” and came just weeks into a year during which investors were seeking insights to better navigate intermittent volatility that impacted global markets.

In September 2018, EFG Hermes’ 8th annual London Conference proved to be yet another success. The conference brought together investors and fund managers representing USD 12 trillion in aggregate AUMs in direct meetings with senior executives from more than 151 leading listed companies based in MENA, Sub-Saharan Africa, Eastern Europe and Asia. Conference participants met at Arsenal’s Emirates Stadium to share insights and investment strategies and connect in search for compelling business opportunities.

EFG Hermes closed off the year with its third Egypt Day Summit in Cairo. The three-day event saw 27 investors from 22 financial institutions representing USD 5.5 trillion in AUMs meet with a cohort of top government officials and CEOs from Egypt’s top listed companies to discuss the stability and steady growth of Egypt’s economy following recent reform efforts.

Key Financial Highlights 2018

Full-year revenues contributed by EFG Hermes Securities Brokerage rose 15% y-o-y to EGP 1,045 million. After a relatively slow start of the year which saw revenues from EFG Hermes’ Brokerage arm come in flat compared to 2017, the Division reported strong year-on-year top-line growth predominately on higher margin income in Egypt and higher brokerage commissions in Kuwait and Frontier markets. Average daily commissions also witnessed strong growth compared to 2017 on the back of robust contributions from Frontier markets.

2019 Outlook

Heading into 2019, EFG Hermes Securities Brokerage will continue delivering on its growth strategy with further expansion of its geographical footprint into new, high-potential Frontier Emerging Markets while continuing to develop and diversify its product offering. The division is confident in a recovery of volumes and sentiment across the wider MENA region during 2019 and expects to capture a large share of new foreign inflows resulting from the six anticipated index inclusions or upgrades between the FTSE and MSCI expected for 2019.

Awards

The division’s exceptional performance in 2018 was duly recognized with several awards and accolades received throughout the year including:

  • Best Equity House in Egypt – EMEA Finance African Banking Awards

  • Best Broker in Egypt – EMEA Finance African Banking Awards

  • Best Equity House – EMEA Finance Middle East Banking Awards

  • Broker of the Year in Egypt, Kuwait and UAE – Euromoney’s Global Investor Division

  • International Broker of the Year – Euromoney’s Global Investor Division

  • Ranked #1 in Africa, Best Frontier Markets Brokerage Firm – Extel Survey 2018